FTC settles Intel lawsuit to 'help consumers'

'Disturbing behavior' curbed

Update The US Federal Trade Commission announced Wednesday morning the much-anticipated settlement of a lawsuit it brought against chip maker Intel last December.

Rather than seeking money — something Intel has doled out to settle other lawsuits with rival AMD and the European Commission's antitrust authorities — the FTC sought something far more troubling to Intel: changing the company's anticompetitive behavior.

And, with the consent agreement that the FTC and Intel announced this morning, FTC chairman Jon Leibowitz claimed it got 22 out of the 26 remedies it was seeking in its complaint, which he characterized with a smile as something he can live with at a press conference in Washington, DC this morning.

Under the consent agreement settling the lawsuit, which you can read in full here, the pattern of Intel's "disturbing behavior," as Leibowitz put it, is curbed.

"We accepted this settlement because it helps consumers," Leibowitz explained, saying that it covered not just central processors but also chipsets and graphics processors, all of which are key components of a modern computing system. "Ensuring that this market remains competitive is essential to our future."

As is customary in these settlements, Intel admits no wrongdoing as part of its inking the consent decree governing its behavior for the next ten years. "While Intel and the FTC have agreed to resolve that dispute, Intel is not admitting to any violation of the law nor does it agree with the allegations contained in the complaint," the company said in a statement.

The FTC had sued Intel under Section 5 of the FTC Act, which was inked in 1914 when Congress believed that the Sherman Antitrust Act lacked enough teeth to foster competition and thwart anticompetitive practices. In its complaint, the FTC alleged that Intel refused to sell processors to companies selling competitive products or tried to keep them to a certain market share for competitors' products.

Leibowitz said in the press conference that Intel also engaged in predatory design practices, which didn't improve the performance of its chips but did thwart the ability of competitors to integrate with Intel's chips. The settled lawsuit also alleged that Intel's CPU compilers were designed expressly to make AMD's chips perform badly.

Intel also threatened to sue Advanced Micro Devices and VIA Technologies, makers of clone x86 processors with cross-licensing agreements with Intel, for violation of their licensing agreements if they transferred manufacturing of their products to a third party. The net effect, said the FTC commissioners, was that if an Intel rival had a hit product, they had limited ability to scale up production to compete against Intel. "A good deal of Intel's competitive advantage over the years has been its capacity," said Richard Feinstein, director of the FTC's Bureau of Competition.

As part of the consent decree, Intel cannot pay PC and server makers to not take chips from AMD, VIA, or anyone else who decides to enter the x86 processor market and compete against Intel. It similarly cannot set its prices or delivery terms for CPUs, chipsets, and GPUs (if Intel ever does discrete GPUs) such that a PC or server maker is required to maintain a set (and one might call it arbitrarily low) market share for products from a rival. Intel is not allowed to take punitive pricing action against PC and server makers who go to rivals when Intel is supply constrained.

The pricing provisions were the main sticking point with Intel, but the FTC did not confirm that today, saying it was inappropriate to discuss the internals of the negotiation process.

"It was a very complex negotiation, and it was very hard fought," said Leibowitz.

The consent decree also requires Intel to maintain a PCI Express bus on its chips that is available to third party peripheral makers and to provide the specs of this bus so they can integrate with Intel's CPUs. This PCI Express provision is in effect for six years, which Leibowitz characterized as covering two generations of GPUs. Intel is not, according to Leibowitz, prohibited from coming up with a better way to link GPUs or other peripherals to its CPUs, but the decree does require this hypothetical link to be an actual engineering improvement, not a barrier that competitors cannot jump. "If they move on to something better and that is good for consumers," then Leibowitz said that this was not only permissible, but encouraged.

Intel also has to kick in $10m for a fund to help pay ISVs that want to recompile for rival processors but who were misled by Intel's compilers into believing that AMD Athlon or Opteron chips were inferior to Intel Core and Xeon products. The fund will help cover the cost of recompiling applications on AMD iron. In the future, Intel has to disclose optimizations it has made in the compilers for its own chips and make similar disclosures in its benchmark tests.

Most significantly, the agreement between the FTC and Intel calls for product interface roadmaps to be supplied to competitors annually and for Intel to answer questions in a timely fashion about these roadmaps as well as to explain any subsequent changes it might make in these roadmaps. Intel can compel its rivals to sign non-disclosure agreements to gain access to these roadmaps.

The FTC made a big deal about the fact that the consent decree with Intel spans CPU, chipset, and GPU technology, and requires Intel to provide specifications to rival chipmakers as well as peripheral makers — something that AMD's lawsuit settlement and the EC settlement that Intel is appealing did not do.

The FTC was pleased with the settlement because it moves quickly to restore competition to the x86 market and its related chipset and GPU markets. Lebowitz said that the FTC was prepared to push for a trial in the lawsuit, but said it would probably take two or three years to get to the appeals court level, and then after that it might have even gone to the Supreme Court on appeal. By that time, the market conditions will have changed and any remedies that the US government might have sought to foster competition would be irrelevant.

To be even more honest, you could argue that the damage to AMD has already been done and that a resurgent Intel got away with all kinds of anticompetitive practices. It is debatable as to whether AMD, VIA, and Nvidia (which may now enter the x86 chip market) can beat Intel even on a more-level playing field, now that Intel has its engineering act together.

The consent decree has a 30-day public comment period, and then can be finalized by the two parties. ®

Update

AMD has released a statement expressing their support for the FTC settlement:

The FTC has acted firmly in the interest of American consumers to safeguard the competitive process in the critically important microprocessor and graphics markets. In our settlement with Intel, AMD’s critical remaining concern was Intel’s use of all-or-nothing discounts to deny competitors’ access to the marketplace. The FTC’s order clearly and firmly prohibits such abuse and guarantees ongoing monitoring of Intel’s conduct. A level playing field is AMD’s goal, and we are confident that our world-class computing and graphics processors will deliver great value and benefit to consumers in a fair and open marketplace.